Clause 296: Release of detained cash

394. Clause 296 envisages two situationsin which cash or any part of the cash may be released to the person from whom it was seized. Firstly, the magistrates' court (or a sheriff in Scotland) may do so in response to an application by the person from whom the cash was seized on the grounds that it is not recoverable property and is not intended for use in unlawful conduct. The fact that only the person from whom the money is seized may apply to the court is intended to prevent the magistrates' court from becoming embroiled in a dispute between the person from whom the cash was seized and the rightful owner of the cash. Secondly, a customs officer, a constable or (in Scotland) a procurator fiscal, may release cash or any part of it after notifying the justice, magistrates' court or sheriff if satisfied that the detention can no longer be justified. By virtue of subsection (5), no such release of cash can take place once an application has been made for its forfeiture or if criminal proceedings with which the cash is connected have begun.

Forfeiture

Clause 297: Forfeiture

395. Clause 297 enables the magistrates' court or sheriff to order the forfeiture of cash or any part of it if satisfied that it is recoverable property or is intended for use in unlawful conduct. The civil standard of proof will apply.

396. Forfeiture will not be ordered if the cash falls within one of the three exemptions:

i) Subsection (3): property belonging to joint tenants, one of whom did not obtain it through unlawful conduct. The court will have discretion not to forfeit the cash that it thinks attributable to the "innocent" partner. An example of this might be a joint bank account into which drug trafficking proceeds (dirty money) has been paid by one signatory and clean money by the other. If the former withdraws all the cash and it is subsequently seized, the court can then distinguish between the clean and dirty money. The court then has the discretion to return to the "innocent" partner his share of the money.

ii) Subsection (5): the court is under an obligation to return the cash or any part of it to any person to whom it appears to rightfully belong if he has been deprived of it by unlawful conduct, for example, the victim of a theft.

iii) Subsection (6): the cash falls under one of the listed recoverable property exceptions given at clause 306 (see relevant paragraphs below). One exception is a protection for a person who sells goods for full value and without notice that the cash that he is receiving, or the property which it represents, was obtained through unlawful conduct. An example of this might be a person who receives £100,000 for drug trafficking and then buys £10,000 worth of jewellery with the cash. The £10,000 in the hands of the jeweller is on the face of it cash obtained through unlawful conduct and is liable to be seized and forfeited. But assuming the jeweller sold the jewellery in good faith, the court has power to allow him to retain the cash.

Supplementary

Clause 300: Compensation

397. Clause 300 provides that where no forfeiture is made following the detention of cash the person from whom it was seized or the person to whom the cash belongs may apply to the court for compensation. Subsections (1) and (2) give the court discretion to pay such compensation where loss has occurred and where the circumstances are exceptional. In most cases, it is thought that the interest that will have accrued from the deposit of the cash into an interest-bearing account as provided in clause 295 will suffice. Moreover, where, as a result of forfeiture proceedings, cash is returned to the person to whom it appears to belong as provided in clause 297(5), it is not thought appropriate that compensation should be payable and subsection (7) reflects this.

Clause 301: "The minimum amount"

398. The current level in respect of the forfeiture of drug-related cash on import or export is £10,000 or more and the Government intends that the same level should be imposed in respect of this scheme.

Chapter 4: General

Recoverable property

Clause 302: Property obtained through unlawful conduct

399. Clauses 302 to 310 apply to both civil recovery and cash forfeiture. Clause 302 defines when property is recoverable, and how the original property may be followed when it is disposed of by the person who originally obtained it or a person who subsequently obtained it. Under subsection (1), property that is obtained through unlawful conduct is recoverable property; as such, it may be recovered by the enforcement authority. But the enforcement authority will not always be able to recover the property from the person who obtained the property through unlawful conduct. The property may, for example, have been sold; or the person may be untraceable, or dead. Subsections (2) and (3) therefore provide that where the property has been disposed of or passed to someone else, it may be 'followed' by the enforcement authority and recovered from that person. If the person to whom the property has been passed then in turn passes it on, the enforcement authority will be able to follow the property along the chain of transactions.

400. The ability to 'follow' property is, however, limited in several ways. Recovery depends on the original property continuing to be identifiable as such. And if any of the transactions in question is of the sort set out at clause 306, the chain will be broken and the enforcement authority will no longer be able to follow and recover the property.

Clause 303: Tracing property, etc.

401. Clauses 303 and 304 allow the enforcement authority to recover property which has not itself been obtained through unlawful conduct but which 'represents' such property.

402. Clause 303 establishes the principle of tracing the original recoverable property if it is disposed of. Under subsection (1), property which represents property which is or has been recoverable, is also recoverable.

403. Under subsection (2), where a person disposes of either the original recoverable property or representative property, and receives property in return, the property he receives in return becomes representative property and will also be recoverable. For example, if a stolen car is sold, the proceeds of sale will 'represent' the original property and the enforcement authority will be able to 'trace' into those proceeds and recover them. And if the proceeds of drug dealing are spent on jewellery, the jewellery itself will represent the original proceeds, and the enforcement authority will be able to recover it.

404. Like 'following' under clause 302, 'tracing' is capable of being pursued along a chain of transactions. Under subsection (3), where representative property is disposed of, it may be followed into the hands of the person who obtains it; it continues to represent the original property, and is therefore recoverable.

405. Tracing and following may multiply indefinitely the items of property that are rendered potentially recoverable. However, the enforcement authority will not be able to multiply its total recovery accordingly; limitations on total recovery are placed by Clause 277.

Clause 304: Mixing property

406. Property which was not itself obtained through unlawful conduct at any stage can come to 'represent' such property, and therefore be potentially recoverable, not only by being traceable by the enforcement authority under clause 303 but also by having become mixed with recoverable property. Because the ability to follow property under clause 302 is dependent on the property retaining its identity, it may become impossible to follow property when it is mixed into other property.

407. Subsection (3) gives some illustration of this problem. If cash which is the proceeds of drug dealing is paid into a bank account which is in credit through deposits of honest earnings, it becomes impossible to identify any individual withdrawals which may be made from that account as being the 'dirty' money rather than the clean. Subsection(2) therefore provides that in such circumstances so much of the 'mixed' property as is attributable to the recoverable property will be representative of the original property, and is therefore itself recoverable.

Clause 305: Recoverable property: accruing profits

408. Clause 305 provides that the property that is recoverable under clauses 302 to 304 is to be taken to include accrued profits; the profits are to be treated as representative property. So, for example, if the enforcement authority can recover money paid into a bank account, the authority can recover it with any interest accrued.

Clause 306: General exceptions

409. Clause 306 constitutes a limitation on the enforcement authority's ability to follow and trace property; the exceptions set out here also apply to the forfeiture provisions in Chapter 3. Clause 302 provides that where, for example, someone is given a yacht in return for a contract killing, and then sells the yacht, the authority may follow the yacht into the hands of the purchaser and recover it from him. Under subsection (1) of this clause,if the purchaser paid full value for the yacht, and was unaware of its unlawful provenance, the authority is not entitled to recover it from him or from anyone else who may subsequently acquire it. The fact that the yacht has ceased to be recoverable property, however, does not prevent the proceeds of the sale of the yacht representingproperty obtained through unlawful conduct,and themselves being recoverable (subsection (10)).

410. Subsection (2) ensures that property ceases to be recoverable following successful civil recovery or cash forfeiture proceedings or following disposal in accordance with Part 5 powers. For example, if property is sold by an interim receiver or interim administrator in the exercise of his powers, although it may still be 'property obtained through unlawful conduct', or representative of such property, it will not be recoverable in the hands of the recipient and may be recycled in the market in the ordinary way.

411. Subsections (3) to (7) set out other circumstances in which property will cease to be recoverable: where a payment is made following a compensation or restitution order under the Powers of Criminal Courts (Sentencing) Act 2000, and the sum or property received would otherwise be recoverable; where a claimant obtains property from a defendant in civil proceedings which are based on the defendant's unlawful conduct, and the property would otherwise be recoverable; where an amount is paid in accordance with a restitution order made by a court under the Financial Services and Markets Act 2000 and that amount would otherwise be recoverable; and where restitution is required to be made by the Financial Services Authority under that Act paying an amount which would otherwise be recoverable.

412. Subsections (8) and (9) serve to exclude property from civil recovery if such property is already the subject of a restraint order, or has been taken into account in making a criminal confiscation order.

Clause 307: Granting interests

413. This clause makes some detailed provision about the granting of interests in property. Take, for example, the case of someone who obtains a freehold house through the proceeds of unlawful conduct, and then grants a tenancy of it. At the time the house was 'obtained', the tenancy had no existence. The tenancy, therefore, cannot be described as having been obtained through unlawful conduct, either by the landlord or by the tenant. But it is intended to be as recoverable as the property obtained by the same unlawful conduct.

414. Under subsection (1), where a person grants an interest in recoverable property, the granting of the interest is to be regarded as a disposal of the property; and the question of whether the interest is recoverable is to be determined in line with the provisions regarding disposal of recoverable property. Under subsection (2), if the interest is in the original property that was obtained through unlawful conduct, it is to be treated as though it had been obtained through the same conduct. And if the interest is in property which represents property obtained through unlawful conduct, it is to be treated as such.

Insolvency

Clause 308: Insolvency

415. This clause sets out the interrelationship between civil recovery and insolvency proceedings. Broadly, a civil recovery claim will be treated in the same way that any other civil proprietary claim is treated in insolvency proceedings. This means that in most circumstances the enforcement authority will have to apply for leave from the court dealing with the insolvency proceedings to bring or continue civil recovery proceedings. This is provided for in the Insolvency Act 1986 (and its Northern Ireland equivalent, the Insolvency (Northern Ireland) Order 1989). However, under the insolvency legislation, leave does not have to be obtained in relation to all types of insolvency proceedings. Clause 308 therefore covers the insolvency proceedings that are not covered by the 1986 Act or the 1989 Order, so that the enforcement authority will have to apply for leave from the insolvency court in all circumstances.

416. The clause also covers the interrelationship between cash forfeiture and insolvency proceedings.

417. Under subsection (1), civil recovery proceedings may not be initiated or continued in respect of property which is subject to insolvency proceedings (as defined in subsection (3)) without the leave of the court which is dealing with the insolvency. Under subsection (2), an application for the further detention of cash under the cash forfeiture provisions in Chapter 3, where the cash forms part of the insolvency proceedings listed in subsection (3), may not be made without the leave of the insolvency court. An application to the insolvency court may be made without notice, to prevent a potential civil recovery respondent finding out about the Director's intention to bring proceedings (subsection (4)); but notice must still be given where required to the insolvency practitioner or to the official receiver (subsection (5)).

Interpretation

Clause 309: Obtaining and disposing of property

418. 'Disposing' of property is a key feature of the provisions at clause 302 and 303, which deal with following and tracing property. Disposal of property may take place, for instance:

where the property is dealt with to some extent only (including where an interest in the property is created - for example where a tenancy is granted out of freehold real property); a disposal might also consist of the grant of an interest in a part (subsection (1));

where a person makes a payment, in cash or any other kind of property, to another (subsection (2));

where property changes hands on death (subsection (3)).

419. Subsection (4) is relevant to the protection provided at clause 306(1) for persons who obtain property 'for value'. It provides that a person obtains property 'for value' only when he has given executed consideration for it. That means that if someone obtains property in return for a promise to pay for it or to perform some service in exchange, that will not count as having 'obtained for value' until the payment is actually made or the service performed.

Clause 310: General interpretation

420. Subsection (1) defines certain terms used in this Part of the Bill. Subsection (3) enables property to be identified and traced by reference to events occurring before commencement of this Part. Subsections (4) to (7) explain the use of the terms 'property' and 'holding property.'

Part 6: Revenue Functions

General Functions

Clause 311: Director's general Revenue functions

421. Subsection (1) sets out the qualifying condition which must be satisfied before the Director of the Assets Recovery Agency can take over general Revenue functions (defined at clause 317(1)). The condition is that the Director must have reasonable grounds to suspect that income, profits or gains arising or accruing to a person (including a company) in respect of a chargeable period are chargeable to tax and arise or accrue as a result of that person's, or another's, criminal conduct. Criminal conduct is defined in clause 320.

422. If this condition is satisfied, then subsection (2) allows the Director to serve a notice on the Board of the Inland Revenue that has the effect of vesting certain functions of the Inland Revenue in the Director.

423. The notice served on the Board of the Inland Revenue will specify a number of things. These will include adequate details to identify the relevant person or company, the chargeable periods in question and also the particular functions that the Director wishes to assume responsibility for. These may be some or all of the functions listed in clause 317(1). The notice will also specify the particular tax periods during which the income, profits or gains are suspected of arising as a result of criminal conduct.

424. Subsection (3) gives effect to the vesting of the Revenue functions in the Director.

425. Subsection (4) allows the Director to serve on the Board a notice of withdrawal of the notice under subsection (2). Paragraph (b) provides that such a notice must be served if the qualifying condition ceases to be satisfied.

426. Subsection (6) states that when a notice of withdrawal is served under subsection (4) above, the Director is divested of the functions specified in that notice and for the periods specified in that notice.

427. Subsection (7) provides for the tax function to be vested in both the Director and the Inland Revenue officers concurrently. This will allow, among other things, routine work to be carried out by the Inland Revenue notwithstanding that the functions are also vested in the Director

428. Subsection (8) provides that in circumstances where authorisation of the Board would normally be required for the exercise of a function it is not necessary if the function is vested in the Director.

Clause 312: Revenue functions regarding employment

429. This clause deals with two areas where there may be a mismatch between periods of account.

430. First, a company will account for income tax, National Insurance contributions and student loan repayments for which it is responsible as an employer for a year of assessment, but its own corporation tax liability will be determined by reference to its accounting period, which is usually different.

431. Second, self employed people are taxed by reference to years of assessment but Class 2 National Insurance contributions are calculated for each week of self employment and due quarterly in arrears.

432. This clause ensures that the Director can only take over the functions which a company is responsible for as an employer and Class 2 National Insurance contributions of the self-employed where the relevant periods for those matters fall wholly within a period or periods for which the Director has served a notice under clause 311.

Clause 313: Source of income

433. Assessments to income tax raised by the Inland Revenue are required to specify the source of the income in question, such as a particular trade. This is not the case for capital gains tax or corporation tax. This clause enables the Director to raise income tax assessments where he discovers a loss of tax even where he cannot identify the source of the income in question.

434. The clause does not extend to the assessments raised by the Inland Revenue, whose practice and powers will remain unaffected. Because of this, the clause stipulates that when the case is transferred back from the Director to the Inland Revenue, any "no-source" assessment made by the Director is invalid.

Clause 314: Appeals

435. This section provides a right of appeal to the Special Commissioners. The right is limited to appeals against actions arising from the exercise of his general Revenue functions by the Director. The right of appeal is equivalent to those available to taxpayers subjected to decisions made by the Inland Revenue. Subsection (1) limits the right of appeal to hearings before the Special Commissioners, effectively excluding access to the General Commissioners.

436. Subsections (2) to (5) provide for the appointment, role and payment of specially qualified assessors to assist in the consideration of appeals.

437. The Taxes Management Act 1970 enables the Lord Chancellor to regulate by secondary legislation the administration of the Special Commissioners hearings. Subsection (4) enables him to include provision about how specialist assessors may assist the Special Commissioners with these appeals.

Inheritance Tax Functions

Clause 315: Director's functions: transfers of value

438. Inheritance tax is generally charged on a "transfer of value", which is disposition made by a person such that the value of their estate goes down. This clause enables the Director to exercise inheritance tax functions if the qualifying condition is satisfied. The qualifying condition requires the Director to have reasonable grounds for believing that there has been a transfer of value and that the value transferred is in whole or in part attributable to criminal property. Criminal property is defined at clause 320. The clause includes provisions equivalent to those in subsections (2) to (4), (6) and (7) of clause 311.

Clause 316: Director's functions: certain settlements

439. This clause makes similar provision in cases of settlements of property which are not subject to a "qualifying interest in possession" (i.e. broadly, they are held on discretionary trusts).

440. In these cases, the Director may assume the Revenue's inheritance tax functions if he has reasonable grounds to believe that all or part of the property comprised in the settlement is criminal property.

441. The clause includes provisions equivalent to those in subsections (2) to (4), (6) and (7) of clause 311.

General

Clause 317: Functions

442. This clause lists the functions that may be vested in the Director if he specifies them in the notice he serves on the Board of the Inland Revenue under the clauses above. It also lists functions that do not vest in the Director.

Clause 318: Exercise of Revenue Functions

443. This clause regulates the Director's exercise of his Revenue functions.

444. Subsection (2) prohibits the Director from delegating his Revenue functions to anyone who is not a member of his staff.

445. Subsections (3) and (4) require the Director to apply any interpretation of the law as published by the Revenue Board and any concessions published by the Revenue Board. Also, he must take account of any other material published by the Board.

446. Subsection (5) will enable the Board to obtain documents and information concerning the exercise by the Director of Revenue functions and his application of the law and concessions.

Clause 319: Declarations

447. This clause requires the Director and the members of the Agency staff authorised to exercise Revenue functions to make a declaration undertaking not to make any unlawful disclosure of information obtained in the exercise of his Revenue functions. The text of each declaration is reproduced at Schedule 5 to the Bill.

Clause 320: Interpretation

448. This clause provides definitions and meanings for some of the terminology used in Part 6 and in particular the terms "criminal conduct" and "criminal property." For the purposes of this Part, "criminal conduct" does not include an offence relating to a matter under the care and management of the Board of the Inland Revenue, for example, tax fraud.

Schedule 8: Amendments

449. The Director will not in general be subject to the jurisdiction of the Parliamentary Commissioner for Administration, but paragraph 2 of this Schedule brings the Revenue functions of the Director within the remit of the Parliamentary Commissioner. So the Commissioner will be able to investigate complaints about the Director's handling of tax and related matters in the same way as he may investigate the Revenue's handling of these matters.

Part 7: Money Laundering

Offences

Clause 321: Concealing etc.

450. Clause 321 creates one of three principal money laundering offences. The other two are to be found in clauses 322 and 323. Because of the definition of criminal property at clause 329, all three principal money laundering offences now apply to the laundering of an offender's own crime proceeds as well as those of someone else. Clause 321 simplifies and replaces section 49 of the Drug Trafficking 1994 and section 93C of the Criminal Justice Act 1988 and the corresponding provisions in Scotland & Northern Ireland (section 14 of the Criminal Justice (International Co-operation) Act 1990 and Article 47 of the Proceeds of Crime (Northern Ireland) Order 1996). The offence would be committed where a person concealed, disguised, converted, transferred or removed from the jurisdiction criminal property. Under clause 329(3) criminal property is property which the alleged offender knows or suspects constitutes or represents benefit from any criminal conduct as defined in clause 329(2). It is not uncommon for the police or other enforcement authority to take possession of criminal property in the course of their official duties and to convert or transfer it, for example into an interest bearing account pending further investigation. Subsection (2)(c) gives them the necessary exemption from the offence.